TFSA Investors: 3 Cheap Stocks to Buy Now

TFSA investors with cash to burn should consider adding cheap stocks such as the Bank of Montreal (TSX:BMO)(NYSE:BMO) to their portfolios.

| More on:
A close up image of Canadian $20 Dollar bills

Image source: Getty Images

The S&P/TSX Composite Index rebounded in a big way through mid April — up by almost 9%. As we near the end of the month, volatility has returned, and the Index is still down by 18.30% in 2020. Now that uncertainty once again reigns, it is time for TFSA investors to look at adding to their portfolios.

The mid-April rebound was dominated by a few industries, and there remains several high-quality stocks that are trading at cheap valuations. 

TFSA investors’ must-own stocks

In Canada, there are very few must-own stocks. These are stocks that form the bedrock of one’s portfolio. There is, however, one sub-set of stocks that remain ultimate foundational stocks — Canada’s big banks.

At this point in time, there is no bank that offers better value than Bank of Montreal (TSX:BMO)(NYSE:BMO). The bank is the worst performing among its peers, down 33.99% in 2020. It is now trading at only 7.21 times forward earnings and 1.02 times book value. This is among the cheapest of the Big Five. 

Likewise, the Bank of Montreal is trading at a 38% discount to its historical average. This is by far the biggest discount of the group. The bank hasn’t traded this low since the peak of the Financial Crisis. 

The bank now yields close to a record high 6.21%, and it is one of the safest dividends on the planet. BMO is the longest-running dividend-paying company in Canada. For more than a hundred years, it has paid an uninterrupted dividend.

TFSA investors would be wise to take advantage of this once-in-a-decade opportunity. 

Income generation

Canada’s real estate industry has been one of the most impacted by COVID-19 measures. Not even the largest in the country are immune to the downfall. RioCan REIT is one of the country’s biggest whose properties are anchored by large retailers. These include the likes of Bank of Montreal, Dollarama, and Costco

RioCan stock has plummeted and is now trading at $15.39 per share. That’s well off the company’s 52-week high of $27.92 per share. It is now trading at 6.93 times earnings, the cheapest it has been in almost a decade. 

TFSA investors looking for income are best to take a hard look at RioCan. The company’s dividend is now yielding 9.36%, which is once again near a decade high. RioCan’s ability to collect rent in the current environment is at the heart of the company’s struggles. Fortunately, RioCan’s strong portfolio of tenants is proving to be an asset. Thus far, it has collected approximately 90% of rents owed for the month of April. 

A cheap tech stock

Thus far, technology is the best-performing industry of the year. TFSA investors who have significant tech exposure are likely to be topping market returns. In fact, many tech stocks are reaching record highs, and most in the industry are trading at high valuations. There is one, however, that stands out for its low valuation — Celestica (TSX:CLS)(NYSE:CLS).

Celestica is an electronic manufacturing service company that is currently trading at a steep discount. At only 0.45 times book value, it is one of only two tech companies that is currently trading below book value. 

Likewise, it is the cheapest tech stock based on sales (0.11) and forward earnings (6.75). TFSA investors should take a hard look at Celestica. With expected earnings growth rates averaging 30% over the next couple of years, Celestica sports a tiny P/E-to-growth ratio of 0.11. Investors would be hard pressed to find a cheaper growth stock. 

Analysts agree. They have a $10.84 price target on the stock, which implies 70% upside from today’s share price.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Mat Litalien owns shares of BANK OF MONTREAL. The Motley Fool recommends Costco Wholesale.

More on Dividend Stocks

Specialty Brands faces higher raw materials costs.
Dividend Stocks

What’s Next for Premium Brands Stock?

Shares of the specialty food production and distribution company have fallen about 25% since last October.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

2 Interesting Buys in Any Market

Here are two intriguing buys in any market climate that offer defensive appeal as well as growth and income earning…

Read more »

Dividend Stocks

TFSA Investors: 3 TSX Stocks for Tax-Free Passive Income

These Canadian corporations have strong visibility over future earnings and dividend payouts.

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

Lazy Landlords: 3 Cheap Canadian REITs to Buy in May 2022

You can become a passive landlord today by investing in Canadian REITs. Here are three cheap REITs to consider this…

Read more »

Target. Stand out from the crowd
Dividend Stocks

4 High-Yield TSX Stocks to Buy Ahead of Their Ex-Dividend Dates

If you have some cash lying idle, consider these high-yielding TSX stocks.

Read more »

growing plant shoots on stacked coins
Dividend Stocks

Passive Income: 3 TSX Stocks With Rapidly Growing Dividends

Worried about inflation? Here are three passive-income stocks to buy that pay rapidly growing dividends.

Read more »

Family relationship with bond and care
Dividend Stocks

Retirees: 4 Safe Stocks to Buy for Decent Passive Income

Retirees can offset the impact of runaway inflation by buying safe dividend stocks to create more cash flows.

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

3 Canadian Energy Stocks to Buy for Reliable Passive Income

Canadian energy stocks are gushing cash. Here's three top stocks that are perfect buys for reliable passive income.

Read more »